San Francisco | Sept 24, 2014 (MarketWatch) — Elon Musk-backed SolarCity Corp. has moved far from its tried-and-true rooftop solar leasing model, and Wall Street doesn’t seem to care.
On Tuesday, the No. 1 U.S. solar installer SCTY, +4.37% struck a deal with the state of New York to build a solar-panel factory upstate.
The company’s shares rallied more than 5% in Wednesday trading.
“SolarCity is getting into a business it has never been before,” said Angelo Zino, an analyst with Capital IQ. Historically, it had outsourced panels from Chinese makers, and it entering the solar-panel making business brings fresh execution risk and capital needs, Zino said.
The $1 billion deal is a sweet one for SolarCity, whose CEO Lyndon Rive is Musk’s cousin (Musk also serves as the company’s chairman). The Empire State will pony up $750 million, mostly to build the facility near Buffalo and add infrastructure, leaving SolarCity to cover the remaining costs.
The so-called Riverbend factory could be online as soon as early 2016. SolarCity will pay $1 plus the cost of utilities to lease the facility for the next decade, with an option to renew the lease.
As part of the deal, Solarcity committed to spending $5 billion to foster “economic activity” in the region over 10 years. The company could be fined should it fall short of its promises.
SolarCity acquired Silevo, a solar-panel maker based in Fremont, Calif., in June for $200 million. At that point, Silevo had already committed to building a solar-panel factory in New York.
Federal tax incentives for solar are set to decrease to 10% from 30% at the end of 2016, and “SolarCity needs to find a way to reduce its cost structure,” Capital IQ’s Zino said.
SolarCity shares have gained 13% so far this year, compared with gains of 7.7% for the S&P 500 Index.
SolarCity recently announced that it was offering $500 million in convertible debt due in 2019, offering some clues as to how the company may be financing its share of the Albany project.